I am often asked to advise clients on property ownership. The most common way to own property is in your personal name, whether on your own or with another person(s). However, it is also possible to own a property in a company or Trust.
Where you own the property personally the profits generated are taxed on you. Depending on your other income this could be at 20%, 40% or 45%. A Trust is subject to income tax at a rate of 45% whereas a company is subject to corporation tax typically at 20%.
Whilst the rate of tax payable by a company can be lower than an individual there is a potential double tax charge. Income Tax will be payable on any profits extracted from the company, however with careful planning your tax liabilities can be minimised. Companies are also subject to tax on any profits made from the sale of the property at 20% as opposed to 28% for an individual or Trust. However, the shareholders would then pay a tax charge on the extraction of these funds.
If as a landlord you are looking to reinvest any profits into new properties then it is possible that a company may be of benefit as you will not be incurring a double tax charge. If you are a basic rate tax payer you may not benefit from the low company tax rate and personal ownership may give you more flexibility on the ultimate sale of the property.
It is also important to be aware of the other non-tax issues surrounding property ownership in different structures. Raising finance, for example, can sometimes be more difficult in a corporate structure.
Whether you are a new landlord or have a portfolio of properties already it is important to get professional advice to ensure any decisions made reflect your personal circumstances.
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